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You Call That Tough?

The only thing missing from Preet Bharara’s press conference was the blaring of trumpets.

It was Tuesday, and the U.S. attorney in Manhattan was proudly unveiling a lawsuit against Deutsche Bank that his office had filed that morning. As he took reporters through the legal complaint, Bharara spoke sternly about how the bank had defrauded the Federal Housing Administration, which had insured hundreds of millions of dollars’ worth of bad loans that the bank then sold to investors, reaping handsome fees.

Listening to Bharara, one could easily think that prosecutors were finally — finally! — getting tough on the bad behavior that helped bring about the financial crisis. Alas, it was mainly an illusion.

Upon closer inspection, it turns out that the main target of Bharara’s wrath was MortgageIT, a smallish division that Deutsche Bank bought in 2007 — eight years into an alleged fraud that ended in 2009. In the complaint itself, not one MortgageIT executive was singled out as a wrongdoer; it was as if this faceless corporation had somehow defrauded the government without human help.

Most stunningly, despite concluding that MortgageIT executives had “knowingly, wantonly and recklessly” lied to federal officials, Bharara’s office had decided that none of them deserved jail time. It had brought a civil, not a criminal, case, meaning the only punishment prosecutors could seek was money — more than $1 billion in this instance. That sounds like a lot until you realize that Deutsche Bank’s 2010 revenues were more than $42 billion. In other words, a tap on the wrist.

“Every lie is not a crime,” said Bharara, when he was asked why no criminal charges had been brought. But two-plus years after the financial crisis, that’s not the right question anymore. The right question is: Are there any lies that amount to crimes? When it comes to financial executives, it sure doesn’t look that way.

To give him his due, Bharara has brought serious insider-trading charges against Raj Rajaratnam, the hedge fund manager, using evidence that included wiretaps of brazen phone calls between Rajaratnam and the insiders who were feeding him illegal information. If Rajaratnam is convicted — inexplicably, the jury remains out after several weeks — he would go to prison for a long time.

Photo

Joe NoceraCredit
Earl Wilson/The New York Times

But that case doesn’t have anything to do with the events that led to the financial crisis; indeed, one can argue that the immense resources devoted to cracking the insider-trading case meant that Bharara lacked manpower to go after those culpable for bringing us to the brink of financial disaster.

He also put Bernie Madoff in prison, though that didn’t exactly require heaving lifting. Later, Bharara would take credit for forcing large settlements from two of Madoff’s presumed enablers, Carl Shapiro and the late Jeffry Picower. But, here again, Bharara was searching for applause he doesn’t deserve. Bharara parachuted into settlement talks that were well under way between Irving Picard, the trustee handling the Madoff bankruptcy, and lawyers for Shapiro and Picower. It was Picard’s inquiry that made those settlements possible.

As for the big fish, they’re all walking away unscathed. The Securities and Exchange Commission got a $67.5 million settlement out of Angelo Mozilo, the former chief executive of Countrywide. (Mozilo paid only $22.5 million; the rest was picked up by Countrywide’s owner, Bank of America.) But prosecutors on the West Coast dropped their criminal investigation.

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The Justice Department spent several years trying to build a case against Joe Cassano, the former head of A.I.G.’s Financial Products division. It gave up. Richard Fuld, the former chief executive of Lehman Brothers, approved a bookkeeping scam that hid billions of dollars of Lehman’s debt from investors. Recent reports suggest that not only will he not be charged with a crime, he isn’t even likely to face civil charges.

The MortgageIT executives are hardly in the same rank as Fuld or Mozilo, but the facts laid out in Bharara’s complaint are truly shocking. Given special status by the F.H.A. to make loans to low-income Americans, which the government would then insure, the company flagrantly lied about the underwriting it had done. Loans would often default in a matter of months. Independent auditors who reported problems saw reports stashed in a closet, unread. To make a criminal case, prosecutors need to show that executives knowingly intended to deceive. If 10 years of this behavior doesn’t qualify as intentional deception, it is hard to know what would.

I know that these are difficult cases to win. The one time prosecutors brought a criminal case involving the financial crisis — against two Bear Stearns hedge fund managers whose fund collapsed in the summer of 2007 — they lost. But so long as prosecutors resist bringing criminal cases against financial executives, they are sending a message.

Crime pays.

A version of this op-ed appears in print on May 7, 2011, on Page A21 of the New York edition with the headline: You Call That Tough?. Today's Paper|Subscribe